The success of any hotel depends on dozens of factors — some within your control and some outside it. But one thing is certain, hoteliers can maximize profitability by determining their Optimal Business Mix.
This is easier said than done. Business mix is a complex and intricate science with lots of variables. But a recent three-part report by Kalibri Labs seeks to decode those complexities by offering analyses alongside practical advice.
It’s kind of a how-to guide for finding a healthy balance of business at the lowest cost possible.
“The differences in cost by channel can range from 5% to 35% of guest paid revenue,” says Cindy Estis Green, CEO and Co-Founder of Kalibri Labs. “That variation needs management attention to ensure the mix of business, down to mix of accounts pursued, is the optimal one.
“We wanted to introduce analytics that would inspire hoteliers to think about their business in a way they might not have thought about it in the analog market, with a traditional view of performance,” she adds. “These analyses might trigger different actions.”
Part III of “Demystifying the Digital Marketplace” highlights all the different channels through which hotels receive business and the differing net revenue values that each channel generates.
It offers several different analyses hoteliers can apply to their own situations, including Flow-Through Analysis, Lifetime Value Analysis and Ancillary Spend Analysis.
“There are a few new ways to view the business due to the dominance of digital channels in the marketplace that are becoming mission critical,” says Green. “Threaded throughout is a sharper focus on profit contribution.”
Flow-Through Analysis dissects the amount of contribution to profit down to a gross operating profit level on a per-roomnight basis for the different channels used by guests. For example, the per-roomnight GOP from direct channels, voice and brand.com is significantly higher than that from third parties, she said.
Lifetime Value Analysis examines the value of recurring guests. Typically, loyalty members booking direct contribute a higher profit contribution than the cost of finding new non-recurring guests who book through third parties.
“Given the high costs of customer acquisition, retention efforts are more critical as recurring customers tend to spend more and are less costly to acquire,” says Green. “Growing a recurring customer base is going to be a driving force for success in the future.”
Ancillary Spend Analysis looks at the additional dollars spent on property beyond room revenue and shows how different types of guests tend to spend different amounts in food and beverage or other revenue centers.
“As we have seen with airlines, hotels have to consider all revenue opportunities, even in select-service settings,” says Green, adding that the report found loyalty guests who book direct spend more than guests coming from third party sources.
“A hotel is in the business of building a base of customers, not cycling through new customers,” says Green. “Decisions made every day have to take this into account.”
As the costs of customer acquisition continue to rise, it’s important to understand the different levels of profit contribution driven by different guests coming through the various booking channels.
“The most important theme of Demystifying the Digital Marketplace is that hotels need to determine their optimal business mix and use that to manage spending on booking plus sales and marketing funds, along with the time spent by their teams to focus on the highest and best use of their time,” Green said.